ABSTRACT
This study has applied Hyman P. Minsky’s financial instability hypothesis to an open and developing economy. We have seen how fragile and unstable financial structures, which ultimately led to the financial crisis, emerged during the finance boom. Indonesia rapidly opened its domestic financial markets to global financiers and experienced an extreme boom-bust cycle within 10 years of liberalization. The evolution of financial structures during the finance boom from 1994 to 1997 enabled Indonesia’s corporate capitalists to pursue a range of economic and political objectives. Taken together, these actions increased systemic risk and ultimately led to a historic economic depression, the impact of which has included human suffering on a massive scale and political instability for at least a generation.
